Most Favored Nation: Building a Framework for Smart Economic Policy

David Robinson is an associate professor of economics and dean of the
Faculty of Social Sciences at Laurentian University.

Jack Mintz, president and CEO of the C.D. Howe Institute, has a vision
for the federal and provincial governments. He wants to use taxation and
public spending to create “the Canadian Advantage.” With its own
unique policy mix Canada will attract business and become the best
country in the world.

Mintz has been a pioneer in calculating the overall effect of business
taxes. In Most Favored Nation, he goes beyond his previous work by
taking into account grants and subsidies. He shows that the overall
burden of taxes on businesses in Canada is higher than in the United
States. While these results are important, they merely make his case for
tax cuts plausible, not compelling. High taxes and high services might
be an attractive package. Assuming that the effective tax level is all
that matters is roughly the same as saying that you care about the price
but not what’s in the box.

The most important section of the book, and one that may be overlooked,
is where Mintz argues for replacing the income tax with a progressive
consumption tax. Consumption taxation exempts all saving and investment,
and is arguably fairer and more efficient that taxing all income.
Recommendations regarding expenditure, on the other hand, are both
conventional and vague.

The book seems to suffers from an ideological ambivalence; Mintz is a
first-class public-finance economist who understands the role of
governments and wants to increase public spending on health care and
education. He is also the CEO of the business-funded C.D. Howe Institute
and wants to cut spending and taxes. He makes subtle arguments about
informational imperfections and loose references to “the size of
government.”

Overall, Most Favored Nation is readable but disappointing. The editing
is not as tough as the author deserves. Readers don’t need to be told,
for example, that “government intervention may harm ... economic
welfare if public programs are poorly designed, costly to administer, or
otherwise result in a less productive economy.” It doesn’t help when
he calls capitation, in which doctors are paid per patient rather than
per visit, “the latest idea for keeping health care costs down.”
Capitation was not a new idea 20 years ago, and it is certainly not the
latest interesting proposal. Researchers should go directly to Mintz’s
original papers, and the rest of us will wait hopefully for his next
book.